fdi for sustainable development and the sdgs by seyed... · the concept of fdi in economic point of...
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FDI for Sustainable Development and the SDGs
- National Challenges and Policy Responses
Seyed Komail Tayebi
Director of CEIEUI,
Department of Economics, University of Isfahan, Iran
Zahra Zamani
Department of Economics, University of Isfahan, Iran
Fifth Meeting of the Asia-Pacific Foreign Direct Investment (FDI) Network
United Nations Conference Centre, Bangkok, Thailand 2 November 2015
Foreign Direct Investment (FDI) can serve as a
catalyst to attain faster economic growth rates in
developing economies.
FDI plays as a key role in globalization.
FDI led-growth results in degradation of the
environment in most cases.
Rising food and water insecurity, climate change
and the growing economic disparity have
emerged as the major threats in this millennium.
Introduction
The Concept of FDI in Economic Point of View
• FDI refers to capital inflows from abroad that invest in the production capacity of the economy and are “usually preferred over other forms of external finance because they are non-debt creating, non-volatile and their returns depend on the performance of the projects financed by the investors.
FDI has many evident benefits which includes:
• Source of economic development,
• Modernization,
• Employment generation,
• Technology spillovers,
• Assists human capital formation,
• International trade integration and exports,
• Create a more competitive business environment,
• Enhances enterprise development,
• Increases total factor productivity
• Improves the efficiency of resource use”.
Sustainable Development in Economic Point of
View The Concept of SD;
• Sustainable Development is defined as “Development which
meets the needs of the present without compromising the
ability of future generations to meet their own needs”.
• This definition requires that future generations should at least
get as much resources as we have, to meet their needs.
The Concept of…
• The Sustainable Development Goals (SDGs), also known as the
Global Goals, are an inter-governmentally agreed set of targets
relating to international economic development.
• They will follow on from the Millennium Development Goals and
build on the sustainable development agenda that was finalized by
member states during the Rio +20 Summit.
• The SDGs were first formally discussed at the United Nations
Conference on Sustainable Development held in
• Rio de Janeiro in June 2012 (Rio+20).
SDGs in Economic Point of Views
The SDGs Implementation
• On 19 July 2014, the UN General Assembly’s Open Working Group on Sustainable
Development Goals (SDGs) forwarded a proposal for the SDGs to the Assembly.
• The proposal contained 17 goals with 169 targets covering a broad range of
sustainable development issues. These included ending poverty and
hunger, improving health and education, making cities more
sustainable, combating climate change, and protecting oceans and
forests.
• On 4 December 2014, the UN General Assembly accepted the Secretary-General's
Synthesis Report which stated that the agenda for the post-2015 SDG process
would be based on the OWG proposals.
• The Intergovernmental Negotiations on the Post 2015 Development Agenda (IGN)
began in January 2015 and ended in August 2015. Following the negotiations, a
final document was adopted at the UN Sustainable Development Summit
September 25–27, 2015 in New York, USA. The title of the agenda is Transforming
our world: the 2030 Agenda for Sustainable Development.
Dimensions of Sustainable Development
Economic Growth
Stability
Efficiency
Social Environment Empowerment Resilience/Biodiversity
Inclusion/Consultation Natural Resources
Institutions/Governance Pollution
Determinants of FDI
• Gross Domestic Product (GDP)
• Degree of Openness
• Exchange Rate
• Per capita GDP
• Social and political stability
• Rule of Law
• Transparency
• Investor friendly regulations
• Tax incentives
• Infrastructure
• Size of domestic markets
• Availability of skilled labor (Human Capital)
• Communication facilities
• Quality of host country’s institutions
• Cost of wages
• Competitiveness of workforce in terms of quality
• Productiveness
• Working conditions and trade
• Specific skills
Dimensions of Investment Policy that are
Key Points for Sustainable Development
Creating regulatory and legal capacity for managing
investment inflows
Promoting and facilitating investment
Attracting private investment in infrastructure
Strengthening the links between investment and trade
Promoting responsible business conduct by
multinational enterprises
Impacts of FDI on Sustainable Development
• FDI is a vital source of external capital for most developing countries
• The macroeconomic impacts of FDI are related mainly to growth and investment.
• Sustainable development depends as much on the quality of investment as on the quantity.
• FDI affect SD both directly and indirectly.
• Finally, FDI is a Vehicle for Sustainable Development.
As a Result …
Sustainable
FDI
Sustainable
Development
Sustainable
Economic
Growth
SDGs Environment
The Causality Relationship between FDI
and Growth
Growth FDI
F(1, 103) = 8.88
Prob. > F = 0.0036
FDI Growth
F(1, 103) = 10.47
Prob. > F = 0.0016
Bhutan, Nepal, Mongolia, Azerbaijan, Sri Lanka, Iran (1990-2014)
Causality Test
Growth FDI
chi2( 1, 104) = 4.12
Prob. > Chi2 = 0.0423
FDI Growth
chi2( 1, 104) = 52.25
Prob. > Chi2 = 0.0000
Malaysia, South Korea, China, Japan, Turkey (1990-2014)
Iran at a Glance
Basis of the economy: oil and gas industries.
70-80 percent of national revenues are secured by
oil and gas exploration.
Iran owns the second largest reserves of gas and
the third largest reserves of crude oil in the world.
The crude oil production is about four million
barrels per day and the daily natural gas
production is more than 120 billion M3.
Private sector activities: Auto manufacturing, textile,
petrochemical, metallurgy, food industries, …
Iran at a Glance
• Iran is rich in Mines and Metal:
– Exports of iron ore, construction and decorative stones, cooper ore, coal, zinc, lead, …,
– World rank of Iran in producing of some mines: 4th of World rank in Zinc, Lead and Cobalt, 6th in Copper
– Metal industries have started to grow up since 1990s
• FAO (2005): Iran is ranked as the fourth for diversity of agricultural products.
• Share of agricultural products in the world market: Saffron (90%), Pistachio (52.5%), Stoned fruits (44%), Mulberry (35.9%), Dates (13.9%)
• Of Top 10 countries for Tourist Attraction
Degree of Openness, as a Challenge
Degree of Openness = (EX+IM)/GDP
Economic Growth, as a Challenge
Investment Share of PPP Converted GDP Per
Capita at Current Prices (%)
Source: Penn World Table
Fluctuations in Iran’s Foreign Direct Investment
Source: World Bank
The Role of Human Capital in Sustainable Economic
Growth: As a Challenge or an Opportunity in
Developing Countries
• Various studies in the context of economic growth of developed and developing countries have shown that growth is not only explained by physical capital and labor force but also, and more importantly, by human capital.
• Human capital can be categorized based on their genders.
• Today human societies recognize the role of women in economic development and international institutions like the World Bank has considered “gender equality as an economic intelligence”
• Education and Training make the accumulation of human capital, higher productivity and improved technology.
• So, Human capital is used to be stated as offered education as an sustainable investment in human.
• Conventional growth theories have failed to explain all aspects of economic development, while economists now consider the role of human capital.
• In addition to physical capital and labor, endogenous economic growth inserted educational capital stock in the economy and in addition, two other factors, such as improving the quality of human resources, the technology and economies of scale have major contribution to economic growth.
Stylized Facts: Economic Growth Model
• Female Human Capital Formation: Education
& Training expenses on Women
• Male Human Capital Formation: Education &
Training expenses Men
We investigated the effects of human capital (both for male and female) on
economic growth in the selected developed countries (OECD) as well as Iran over
the period 1974-2012.
Empirical Results for OECD
Variable Coefficient Z Pr.>z|
Cons. -70.33 -5.75 0.000
Capital Stock 0.02 3.20 0.001
Female LF 2.87 4.16 0.000
Male LF 8.99 3.96 0.000
Female H 41.65 8.43 0.000
Male H 12.96 4.61 0.004
Trade 16.37 8.78 0.000
Trade*FH 11.91 9.22 0.000
Trade*MH 0.62 4.62 0.000
R2=0.98
Empirical Results for Iran
Variable Coefficient t Pr.>|t|
Cons. 8.52 2.47 0.025
Capital Stock 0.45 5.78 0.000
Female LF 0.52 3.10 0.000
Male LF 2.15 3.49 0.003
Female H 11e-16 13.20 0.000
Male H 0.00016 4.88 0.000
Trade 0.35 10.31 0.000
Trade*FH 0.01 10.62 0.000
Trade*MH 0.35 0.40 0.69
R2=0.96
Conclusion Investment Opportunities: Towards Iran’s SDGs
The recent nuclear agreement between Iran and the P5+1 could lift the sanctions and obviously change the competitive environment in the oil sector.
A sensible acceleration of non-oil exports has taken place in recent years.
Non-oil exports have increased significantly in Central Asian markets. It is clear that there is potential for further growth of Iranian non-oil exports in the region.
What is interesting is that there is now a real consensus in Iran among the government and the private sector on the necessity to improve private sector competitiveness in order to increase non oil exports. The government of President Rouhani has stated clearly its willingness to support the private sector.
The new government is also thinking about increasing the size of the private sector in the economy and simplifying firms’ legal requirements.
Conclusion Better Conditions for Foreign Investments
Reasons to Invest in Iran
Iran qualifies from many respects to be a good location for investments and doing business:
1) Strategic Location: A unique geographical location at the heart of a cross-road connecting the Middle East, Asia and Europe, coupled with many inter- and trans-regional trade, customs, tax and investment arrangements;
2) Market Potentials and Proximity: Vast domestic market with a population of 70 million growing steadily as well as quick access to neighboring markets with approximately 300 million inhabitants;
3) Climate Characteristics: A four-season climate endowment as a privilege to agricultural activities throughout the country and throughout all seasons.
4) Labor Privileges: Large pool of trained and efficient
manpower at very competitive cost in a diversified
economy with an extensive industrial base and service
sector.
5) Low Utility and Production Cost: Diversified range
of energy, telecommunication, transportation, as well as a
public utilities;
6) Abundant Natural Resources: Varied and plentiful
reserves of natural resources ranging from oil and gas to
metallic and non-metallic species reflecting the country’s
accessibility to readily available new materials.
An Issue for Roundtable:
A Policy Agenda on Relationship between
Sustainable FDI and SDGs FDI impacts depend to a large extent on the capabilities of domestic firms in
host countries. Hence, it is a priority to improve the competitiveness of local firms (especially SMEs).
Policy efforts in the FDI area should focus not only on the quantity of FDI received but also on its quality.
We should deal with the impacts of FDI on unemployment and wage inequality (decreasing or increasing).
Labor productivity increases after a domestic firm is acquired by foreign investors.
Exports and export propensities increase after the firm changes ownership.
foreign firms are more prone to undertake environmental management activities and to generate positive environmental spillovers, however, foreign ownership is somewhat associated to a relative decrease in the quality of environmental management .
Thank you for your
attention